Assets under management have hit a record high at Schroders and the firm has hedge funds in its sights, recently raising funds for veteran investor John Paulson.

Schroders witnessed a £5.1 billion rise in assets under management in the first quarter of 2014, from £262.9 billion at the end of December 2013 to £268 billion at the end of March 2014, according to its quarterly results today.

This week, Schroders announced that it was launching Schroder GAIA Paulson Merger Arbitrage fund, which will be externally managed by Paulson, the man best-known for making huge gains from the collapse of the sub-prime mortgage market.

In an interview with Financial News, Michael Dobson, chief executive of Schroders, said: “We are looking at other longer term possibilities. Where we find a manager who we think is outstanding, we [can] use our distribution and experience…to raise assets for them. We have done it with in house strategies as well.

“John Paulson is a big figure in the industry. His arbitrage strategy is his oldest, although he shot to fame with his activities in the mortgage market in the US.

"The first we launched on this [platform] was an Egerton Capital long/short equity fund three years ago. We have done this now with four or five managers. Last year, we did a long short US equity fund with Sirious.”

The Schroder GAIA platform was launched in November 2009 and had $5.6 billion in assets under management as at April 28, 2014.

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The company saw pre-tax profit and exceptional items rise to £130.7 million over the first quarter, compared with £115 million in the first quarter of 2013.

Dobson said profits could have been around £15 million higher were it not for the fact that two thirds of its clients were outside of the UK. He explained: “Sterling has quite an impact on us and has been strong. On a constant exchange change basis, our profits would have been £15 million higher. Inflows were about a billion higher than the market expected.”